Continental (XTER:CON, Financial), a German tire and automotive component manufacturer, was a notable detractor for the quarter after it released a mixed set of results in August. Incremental weakness on the component side was primarily driven by the global computer chip shortage, which has impacted light vehicle production globally and also especially affected Continental due to the company’s business mix. On the positive side, its tires business is clearly benefiting from recoveries in both volume and pricing. Since reporting results, Continental’s expectations for light vehicle production have come down further and will likely put pressure on near-term results. In September, the company completed the spinoff of its powertrain business, Vitesco Technologies, which produced solid results in its final quarter with Continental. We believe the eventual recovery of vehicle production growth, combined with increasing content in vehicles from Continental and significant cost reductions, should significantly improve the company’s financial results over the next few years. We continue to find Continental has an attractive portfolio and believe that it is undervalued relative to its normalized earnings power.
From David Herro (Trades, Portfolio)'s Oakmark International Fund third-quarter 2021 commentary.
